The Social Networking Companies valuations are growing like gorilla on the basis of number of registered users and unique monthly user base. It is interesting that few years old blogging site Tumblr was acquired by Yahoo in $1Billion deal whereas 751 million was attributed to Goodwill and on top of that Tumblr had a liability of $141 million. Similarly Instagram sold itself to Facebook in $1Bn. Another Social Networking company Pintrest raised another round of $225 million funding and managed to get $3.8 Bn in valuation on the basis of 50 million unique user base.
I still remember MySpace, the darling of Social Networking in 2005 and News Corp. decided to purchase it for $580 million in Cash. In 2007, New Corp tried to merge MySpace with Yahoo with tentative valuation of $12 Bn. Unfortunately, the rise of Facebook in 2007 pulled most of the users from MySpace and turned them into loss making unit of News Corp. At last in 2011, News Corp decided to sell MySpace in merely $35 million. Classic example of Social Networking one is AOL $160 Bn acquisition by Time Warner in 2000 which led Time Warner share in single digit and heavy write-off. Now AOL is still trying to survive as standalone company post Time Warner washed their hand from AOL and huge write-down. Most of the investor invest heavily in Social Networking site with an assumption that they may turn their investment into gold mine post the classic example of Google but most of them miss to analyze that the change in user contextual pattern may wipe out user base in no time. In my point of view, most of the Social Networking Companies with many billions dollars will go bust an in turn may inflict heavy losses to investor or acquirer. I can say currently its Social Networking era which may lead to debacle of many good companies in coming years.
